Measures for the Administration of Lease Financing Companies

Article 2: For the purposes of these Measures, the term "lease financing company" means a non-bank financial institution approved by the China Banking Regulatory Commission that principally engages in the lease financing business.

A lease financing company shall have the words "lease financing" in its name. Without the approval of the China Banking Regulatory Commission, no work unit or individual may engage in lease financing or use the words "financial leasing" in its name, unless otherwise provided in laws or regulations.

Article 3: For the purposes of these Measures, the term "lease financing" means the business activity wherein a lessor, based on the selection or acceptance by the lessee of the leased thing and the supplier thereof, leases in accordance with a contract the leased thing obtained from the supplier to the lessee for the latter's possession and use and for which it charges rent to the lessee.

The leased things to which lease financing transactions apply shall be fixed assets.

Article 4: For the purposes of these Measures, the term "sale-leaseback" means a form of lease financing wherein the lessee sells its own thing to the lessor and executes a lease financing contract with the lessor under which it leases back the thing from the lessor. Sale-leaseback is a form of lease financing wherein the lessee and the supplier are the same party.

Article 5: For the purposes of these Measures, the terms "affiliated relationship" and "affiliated transaction" mean an affiliated relationship and affiliated transaction as defined in relevant enterprise accounting standards.

Article 6: The China Banking Regulatory Commission and its agencies shall oversee lease financing companies in accordance with the law.

PART TWO: ESTABLISHMENT OF, CHANGES TO, AND TERMINATION OF BUSINESS OF, AN INSTITUTION

Article 7: To apply to establish a lease financing company, the following conditions shall be satisfied:

(1) having investors that comply herewith;

(2) having the minimum registered capital complying herewith;

(3) having articles of association that comply with the PRC Company Law and these Measures;

(4) having directors and senior management personnel with qualifications for their positions that comply with the provisions of the China Banking Regulatory Commission, and qualified professional personnel who are familiar with lease financing;

(5) having sound corporate governance, internal control, business operation, risk prevention and other such systems;

(6) having an up-to-standard place of business, security measures and other facilities for the business; and

(7) other conditions as specified by the China Banking Regulatory Commission.

Article 8: The investors in lease financing companies are divided into major investors and ordinary investors. The term "major investor" means an investor whose capital contribution will account for at least 50% of the registered capital of the lease financing company to be established. The term "ordinary investor" means an investor other than the major investor.

When a lease financing company is to be established, the major investor shall be the applicant and submit the application to the China Banking Regulatory Commission.

Article 9: The major investor in a lease financing company shall satisfy one of the conditions set forth below:

(1) being a commercial bank with independent legal personality that is registered in China or abroad, and that satisfies the following conditions:

(i) having a capital adequacy ratio that satisfies the requirements of the financial regulator of the place where it is registered and that is not less than 8%;

(ii) having assets of not less than Rmb80 billion or the equivalent in a freely convertible currency as at the end of the most recent year;

(iii) having been profitable for the two most recent years in succession;

(iv) complying with the laws and regulations of the place where it is registered, and not having been involved in a major case or committed a major violation of laws or regulations during the most recent two years;

(v) having a good corporate governance structure, internal control mechanisms and a sound risk management system; and

(vi) other prudential conditions as specified by the China Banking Regulatory Commission;

(2) being a lease company registered in China or abroad, and satisfying the following conditions:

(i) having assets of not less than Rmb10 billion or the equivalent in a freely convertible currency as at the end of the most recent year;

(ii) having been profitable for the two most recent years in succession; and

(iii) complying with the laws and regulations of the place where it is registered, and not having been involved in a major case or committed a major violation of laws or regulations during the most recent two years;

(3) being a large enterprise registered in China whose core business is the manufacture of products suitable for lease financing transactions, and satisfying the following conditions:

(i) having an operating revenue of not less than Rmb5 billion or the equivalent in a freely convertible currency in the most recent year;

(ii) having been profitable for the two most recent years in succession;

(iii) having a net asset ratio of not less than 30% as at the end of the most recent year;

(iv) sales revenue from its core business accounting for at least 80% of its entire operating revenue;

(v) having a good credit record; and

(vi) complying with the laws and regulations of the place where it is registered, and not having been involved in a major case or committed a major violation of laws or regulations during the most recent two years; or

(4) being another financial institution recognized by the China Banking Regulatory Commission as being eligible to serve as major investor.

Article 10: Ordinary investors in a lease financing company shall comply with relevant provisions of the China Banking Regulatory Commission on the investment and taking an equity interest in financial institutions. An investor that satisfies the conditions for being a major investor as specified herein may serve as an ordinary investor in a lease financing company.

Article 11: The minimum registered capital of a lease financing company shall be Rmb100 million or the equivalent in a freely convertible currency. Registered capital shall be paid-in monetary capital.

Based on the development requirements of the lease financing sector, the China Banking Regulatory Commission may revise the minimum registered capital requirement of a lease financing company.

Article 12: The establishment of a lease financing company shall take place in two stages, preparation and commencement of business. The Chinese language versions of the application materials for preparation for establishment and for commencement of business submitted by an applicant shall prevail. The acceptance of materials and the examination and approval procedure shall be handled in accordance with the implementing provisions of the China Banking Regulatory Commission concerning administrative licensing matters.

Article 13: When applying for preparation for the establishment of a lease financing company, the applicant shall submit the following documents:

(1) a written application for preparation for establishment, which shall specify the name, place of registration and registered capital of the proposed lease financing company, its investors and their capital contributions, its scope of business, etc.;

(2) a feasibility study report, which shall include an analysis of the proposed company's market prospects, its future business development plans, its organizational and management structure, an analysis of its risk control capabilities, forecasts of the size of the company's assets, liabilities and profits three years after it has commenced business, etc.;

(3) (a draft of) the articles of association of the proposed lease financing company;

(4) the basic particulars of the investors, including their names, legal representatives, registered addresses, photocopies of their business licences, their business positions and the capital contribution agreement; if an investor is a foreign financial institution, an opinion issued by the financial regulator of the place where it is registered shall be submitted;

(5) the annual audit reports of the investors for the most recent two years audited by a qualified intermediary organization; and

(6) other documents as required by the China Banking Regulatory Commission.

Article 14: Once the preparatory work for the establishment of a lease financing company has been completed, the lease financing company shall apply to the China Banking Regulatory Commission for commencement of business and submit the following documents:

(1) a report on the preparatory work and an application to commence business;

(2) a capital verification certificate issued by a qualified domestic intermediary organization and the pre-approved registration certificate for the name of the proposed lease financing company issued by the administration for industry and commerce;

(3) the register of shareholders and their capital contributions and capital contribution percentages;

(4) the lease financing company's articles of association, which shall, at minimum, specify the following: the institution's name, business address, nature, registered capital, scope of business, organizational form, and matters concerning operations, management, suspension of business, liquidation, etc.;

(5) a list of the proposed senior management personnel, their detailed résumés and proof of their qualifications for their positions;

(6) the rules and regulations for the proposed business and the risk control system;

(7) information on the place of business and the other facilities for the business; and

(8) other documents as required by the China Banking Regulatory Commission.

Article 15: With the approval of the China Banking Regulatory Commission, a lease financing company may establish branches and sub-branches. The specific conditions for the establishment of branches and sub-branches shall be specified separately by the China Banking Regulatory Commission.

Article 16: The China Banking Regulatory Commission subjects the directors and senior management personnel of lease financing companies to a system for the approval of their qualifications for their positions.

Article 17: If a lease financing company is to undergo any of the following changes, the approval of the China Banking Regulatory Commission shall be required:

(1) change in name;

(2) change in organizational form;

(3) revision of scope of business;

(4) change in registered capital;

(5) change in equity;

(6) amendment of articles of association;

(7) change in place of registration or place of business;

(8) change in directors or senior management personnel;

(9) merger or division; or

(10) another change as specified by the China Banking Regulatory Commission.

Article 18: With the approval of the China Banking Regulatory Commission a lease financing company may be dissolved if:

(1) the term of operations specified in its articles of association expires or another reason for dissolution as specified in its articles of association arises;

(2) the shareholders' (general) meeting resolves to dissolve it;

(3) it needs to be dissolved due to a merger or division;

(4) it has its business licence revoked in accordance with the law, is ordered to close down or is closed down in accordance with the law; or

(5) another statutory reason.

Article 19: With the approval of the China Banking Regulatory Commission, a lease financing company may file for bankruptcy with a court if:

(1) it is insolvent and it voluntarily files for bankruptcy or is required to file for bankruptcy by its creditors; or

(2) it is being liquidated after being dissolved or closed down, the liquidation committee discovers that its property is insufficient to discharge its debts and it is required to file for bankruptcy.

Article 20: When a lease financing company is insolvent and its assets are insufficient to discharge all of its debts or it clearly lacks the capacity to discharge the same, the China Banking Regulatory Commission may file a petition with the people's court for the restructuring or the bankruptcy and liquidation of such company.

Article 21: If the business of a lease financing company is terminated due to the company being dissolved, being closed down in accordance with the law or being declared bankrupt, the liquidation thereof shall be handled in accordance with relevant state laws and regulations.

PART THREE: SCOPE OF BUSINESS

Article 22: With the approval of the China Banking Regulatory Commission, a lease financing company may engage in some or all of the following businesses in renminbi and foreign currencies:

(1) lease financing;

(2) taking shareholder term deposits of one year or more;

(3) accepting lease deposits from lessees;

(4) transferring rents receivables to commercial banks;

(5) offering financial bonds following approval;

(6) interbank lending;

(7) borrowing from financial institutions;

(8) foreign exchange borrowing abroad;

(9) sale and disposal of leased products for their residual value;

(10) economic consulting; and

(11) other businesses as approved by the China Banking Regulatory Commission.

Article 23: A lease financing company may not take deposits from bank shareholders.

Article 24: If the business engaged in by a lease financing company involves foreign exchange control matters, it shall comply with relevant state provisions on foreign exchange control.

PART FOUR: OPERATING RULES

Article 25: The corporate governance of a lease financing company shall be established as an organizational structure consisting of main bodies such as a shareholders' (general) meeting, board of directors, supervisory board, senior management, etc., specify the division of duties among them and ensure that they each operate independently and effectively check and balance each other so as to give rise to a scientific and effective decision-making, incentive and restraint mechanism.

Article 26: A lease financing company shall establish and enhance its internal control systems based on the principles of comprehensiveness, prudence, effectiveness and independence and submit details of the same to the China Banking Regulatory Commission or its agency for the record.

Article 27: The affiliated transactions of a lease financing company shall be conducted in accordance with commercial principles and on terms that are no more favorable than those offered to non-affiliated parties for the same type of transaction.

Article 28: A lease financing company shall formulate rules and regulations for the management of affiliated transactions that shall specifically provide for the following:

(1) oversight of affiliated transactions by the board of directors or the business decision-making body;

(2) the duties and composition of the affiliated transaction control committee;

(3) collection and management of affiliated parties' information;

(4) the reporting and undertaking system and the identification and confirmation system for affiliated parties;

(5) the types of, and pricing policy for, affiliated transactions and the examination and approval procedures and standards;

(6) the recusation system;

(7) internal audit supervision;

(8) information disclosure;

(9) penalty measures; and

(10) other provisions as required by the China Banking Regulatory Commission.

Article 29: The material affiliated transactions of a lease financing company shall require the approval of its board of directors. The term "material affiliated transaction" means a single transaction between a lease financing company and an affiliated party the value of which is equivalent to at least 5% of the lease financing company's net capital, or, after the occurrence of a transaction between the lease financing company and an affiliated party, transactions with such affiliated party the balance of which is equivalent to at least 10% of the lease financing company's net capital.

Article 30: When the board of directors of a lease financing company, or, for a lease financing company that does not have a board of directors, the business decision-making body and the affiliated transaction control committee vote or decide on a affiliated transaction, the person(s) with the affiliated relationship to the affiliated transaction shall recuse himself/herself/themselves.

Article 31: A sale-leaseback must have a definite subject matter, and the subject matter shall comply with the provisions hereof.

Article 32: The subject matter of a sale-leaseback must be genuinely owned by the lessee and it must have the right to dispose of the same. A lease financing company may not accept, as the subject matter of a sale-leaseback, property that has been mortgaged, over which there is a dispute as to title, that has been placed under seal or seized by the judicial authorities, or the ownership of which is otherwise defective.

Article 33: The price paid by a lease financing company to purchase the subject matter of a sale-leaseback shall have as reference a reasonable pricing basis that does not violate accounting standards. The purchase of a thing of low value at a high price is prohibited.

Article 34: A lease financing company that engages in sale-leaseback shall genuinely have obtained ownership of the subject matter. If the subject matter falls within the category of property that state laws and regulations specify require registration with the registration department of the transfer of title thereto, the lease financing company shall carry out the relevant registration procedure.

PART FIVE: OVERSIGHT

Article 35: A lease financing company shall comply with the following regulatory indicators:

(1) capital adequacy ratio: the net capital of a lease financing company may not be less than 8% of its risk-weighted assets;

(2) degree of financing exposure to a single customer: the balance of a lease financing company's financing to a single lessee may not exceed 30% of its net capital; when calculating the balance of the financing to a customer, the deposit provided by the lessee at the time of granting the financing may be deducted;

(3) degree of affiliation with a single customer: the balance of a lease financing company's financing to an affiliated party may not exceed 30% of its net capital;

(4) degree of affiliation with a group of customers: the balance of a lease financing company's financing to all of its affiliated parties may not exceed 50% of its net capital;

(5) interbank lending ratio: the balance of a lease financing company's interbank borrowing may not exceed 100% of its net capital.

The China Banking Regulatory Commission may, depending on regulatory requirements, appropriately revise the foregoing indicators.

Article 36: A lease financing company shall disclose information in accordance with relevant enterprise accounting standards and the relevant provisions of the China Banking Regulatory Commission.

Article 37: A lease financing company shall implement the classification system of five-class risk assets.

Article 38: A lease financing company shall formulate a bad debt reserve system in accordance with relevant regulations and make allocations to such reserve in full and on time. If it fails to make sufficient allocations to such reserve, it may not distribute profits.

Article 39: A lease financing company shall, in accordance with provisions, prepare and submit to the China Banking Regulatory Commission balance sheets, profit and loss statements and other statements as required by the China Banking Regulatory Commission. The legal representative and direct handling person of the lease financing company shall be legally liable for the truthfulness of the submitted statements.

Article 40: Within four months after the end of each financial year, a lease financing company shall submit to the China Banking Regulatory Commission or the relevant agency thereof a report on its affiliated transactions during the preceding year. The report shall include the affiliated parties, types of transactions, amounts and subject matters of the transactions, the transaction prices and pricing methods, the gains and losses on the transactions, the nature and percentage of the rights and interests accounted for by the affiliated parties in the transactions, etc.

Article 41: A lease financing company shall establish a periodic external audit system and, within four months after the end of each financial year, submit an annual audit report signed in confirmation by its legal representative to the China Banking Regulatory Commission and the relevant agency thereof.

Article 42: If a lease financing company violates relevant provisions hereof, the China Banking Regulatory Commission may order it to rectify the matter within a specified period of time. If it fails to rectify the matter within the specified period of time, or if the violation seriously threatens its stable operation or seriously harms the lawful rights and interests of customers, the China Banking Regulatory Commission may, depending on the circumstances, take regulatory measures such as ordering it to suspend operations and restricting shareholder rights in accordance with laws and regulations such as the PRC Banking Regulation Law.

Article 43: If a credit crisis has occurred or could occur in a lease financing company, seriously affecting the lawful rights and interests of customers, the China Banking Regulatory Commission shall, in accordance with the law, entrust the management of the lease financing company to a third party or urge it to undergo restructuring. If the issue is serious, the China Banking Regulatory Commission shall have the right to close it down.

Article 44: The China Banking Regulatory Commission shall impose penalties for violations of relevant provisions hereof in accordance with laws and regulations such as the PRC Banking Regulation Law. If a lease financing company objects to a penalty decision rendered by the China Banking Regulatory Commission, it may, in accordance with the law, apply for administrative review or institute an administrative action with the people's court.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 45: The China Banking Regulatory Commission is in charge of interpreting these Measures.

Article 46: These Measures shall be effective as of
March 1 2007.